Congressional Testimony

STATEMENT OF MITCHELL E. DANIELS JR.
DIRECTOR
OFFICE OF MANAGEMENT AND BUDGET
BEFORE THE
SUBCOMMITTEES ON
TECHNOLOGY, AND
ENERGY POLICY, NATURAL RESOURCES AND REGULATORY AFFAIRS

May 24, 2001

Good Morning, Mr. Chairmen and distinguished Members. Thank you for the opportunity to discuss the effectiveness of the Unfunded Mandates Reform Act of 1995, and, in particular, Title II of the Act.

This Administration fully supports the principles that gave rise to the passage of the Unfunded Mandates Reform Act (the Act) in 1995. The Act was designed to ensure that Congress and Executive Branch agencies consider the impact of legislation and regulations on States, local governments, and tribal governments, and the private sector. With respect to States and localities, the Act was an important step in recognizing State and local governments as partners in our intergovernmental system, rather than mere entities to be regulated or extensions of the federal government through which to advance Washington's priorities. President Bush and his Administration are committed to working with State and local governments to advance these principles not just on paper, but in practice.

One of the purposes of the Unfunded Mandates Reform Act was to establish "a process to enable the elected and other officials of State, local and tribal governments to provide input when federal agencies are developing regulations." With improved communication and full consideration of State and local government concerns and suggestions, regulatory processes and program delivery systems can work more effectively. In addition, we should be able to eliminate unnecessary burdens and duplication of paperwork.

Unfortunately, experience to date suggests that the Executive Branch's implementation of the Unfunded Mandates Reform Act has not moved Federal agencies significantly closer to accomplishing these objectives. Indeed, it seems that Title II of the Act has been regarded by some agencies as a perfunctory exercise, rather than an opportunity to work in good faith with our non-federal partners.

Not only have agencies attempted to shirk the duties assigned them under the Act, I believe they have failed to consistently meet the goals set forth for intergovernmental consultation. Just this week, White House staff attended a meeting of the governors' Washington representatives and asked which agency or agencies were doing a good job consulting with the States; the answer was silence. No federal agency is consulting with State and local governments in the methodical way that was intended when the law was developed. States and localities report that many agencies think simply informing State and local governments of a rulemaking action is the equivalent of consultation. They have also indicated that consultation processes lack uniformity, that consultation does not occur early enough in the rulemaking process, and on the rare occasions when consultation does occur, agencies often contact their State or local counterparts instead of the elected officials (or chief appointed officials) entrusted by the public with running the government.

The purpose of consultation with State and local governments, who are often in the position of enforcing federal rules in partnership with the federal government, is to find the rulemaking alternative that best accomplishes the objectives of the rule with minimum burden to all concerned. When agencies fail to solicit or consider the views of States and localities, they deny themselves the benefit of State and local innovation and experience. This will not be accepted practice in this Administration. I will require agencies to submit the dates at which stakeholders were contacted. Prior to OIRA's review of any new regulations, if there has not been adequate consultation as called for by the Act, OMB will return regulations to the originating agency for completion of this responsibility.

As OMB has noted in its five annual reports to Congress on the implementation of Title II of the Act, eighty rules have required the preparation of a mandates impact statement in the five years since the Act was passed. It is hard to imagine that only eighty regulations had significant impacts on State, local, or tribal governments, or the private sector. In fact, it appears that agencies have attempted to limit their consultative processes, and ignored potential alternative remedies, by aggressively utilizing the exemptions outlined in the Act.

For example, last June the EPA issued a new regulation known as the Total Maximum Daily Load (TMDL). The rule requires States to develop and implement plans to clean up impaired waters, which, of course, is a reasonable goal. The Agency estimated the "incremental" cost of complying with the additional planning requirements at $23 million per year. Therefore, the regulation was not considered an unfunded mandate. However, EPA completely excluded from its analysis the costs of the pollution control measures that will be imposed by the new regulation. Compliance costs are expected to run into the billions of dollars per year for the private sector and local governments. Yet, EPA moved forward without deference to the requirements of the Act.

This is just one flagrant example of an agency evading the cost-benefit analysis requirements set forth under the Act.

One of my priorities is to identify and close any loopholes that may have been created by agencies' interpretation of the law. It is not enough to comply merely with the letter of the law; President Bush expects the executive branch to comply with its spirit as well. In short, agencies should be preparing more mandates impact statements.

GAO, in reporting on the Act's first two years in 1998, noted that "There was a limited direct impact of the Act on agencies' rulemaking." It is clear that more can be done, with respect to the Unfunded Mandates Reform Act and beyond, to ensure that federal agencies consider the impact of rulemaking activities on States, local governments and the private sector.

President Bush, as a former governor, recognizes the need for more federal cooperation with State, local, and tribal governments. On February 26, the President established an Interagency Working Group on Federalism. Devolving authority and responsibility to State and local governments, and to the People, is a central tenet of our management of the Executive Branch.

The Interagency Working Group is responding to the President's call. The group consists of Cabinet secretaries, agency heads and senior White House staff, including myself. Their participation in the drafting of a new Executive Order will ensure that the Order signed by the President will result in action, rather than an Order on paper alone, unheeded and unenforced. The Working Group has welcomed the input of State and local government officials and others who share ideas to promote State and local innovation, flexibility and accountability. The President has directed the Working Group to present him with a Federalism Executive Order, and a report with recommendations to promote the principles of federalism, by the end of August.

In conclusion, the Unfunded Mandates Reform Act was an important step in restoring greater balance and mutual respect to the federal system. It has raised awareness of the importance of State, local and tribal government and private sector concerns among agency decisionmakers. However, more work is needed in order to achieve the goals of the Act.

On behalf of the Administration, I am prepared to make the following commitments:

First, we will do more to involve State and local governments early in the rulemaking process. Consultation means little if it occurs after the opportunity to improve a rule is passed. Agencies should consult with State and local governments, including their elected officials and Washington representatives, before they have committed to any particular rulemaking alternative.

Second, we will bring more uniformity to the consultation process to help both agencies and our intergovernmental partners know when, how and with whom to communicate. States and localities should have a clear point of contact in each agency, and agencies must understand that "consultation" means more than making a telephone call the day before a rulemaking action is published in the Federal Register.

Third, we will enforce the Unfunded Mandates Reform Act to ensure that agencies are complying with both the letter and the spirit of the law. The Office of Information and Regulatory Affairs (OIRA) is under my direction, and I will direct OIRA to return a rule that is not in compliance with the Unfunded Mandates Reform Act to the agency from which it came. If an agency is unsure whether a rule contains a significant mandate, it should err on the side of caution and prepare a mandates impact statement prior to issuing the regulation.

Mr. Chairmen, the Administration is committed to securing greater involvement with our intergovernmental partners in Federal decisionmaking. As President Bush noted, "I'm going to make respect for federalism a priority in this Administration." We look forward to developing this partnership, and to working with the Congress as well, to ensure it is a successful one.